Analysis
Atlassian Beat Estimates, Then Fell 16% on a Slower Outlook
Atlassian fell 16.2% to $153.68 on Friday after forecasting subscription growth slowing to about 18.5%, despite first-quarter revenue up 24% to $1.77 billion.
Atlassian did better than expected and was punished for what comes next. The maker of Jira and Confluence reported after the close on Thursday, November 5, first-quarter revenue of $1.772 billion for its 2027 fiscal year, up 24% and above the $1.71 billion consensus, and adjusted earnings of $1.65 a share against $1.43 expected, SiliconANGLE reported. Cloud revenue grew 31% to $1.302 billion. The shares fell about 17% after hours and closed Friday at $153.68, down 16.2% from $183.29.
The problem was the slope of the forecast. Atlassian guided second-quarter revenue to $1.825 billion to $1.835 billion and cloud growth to about 27%, and now expects full-year revenue growth of about 13.75%, cloud growth of about 26% and a decline of about 16% in revenue from Data Center, the self-managed product it is moving customers away from. Subscription annual recurring revenue, $6.812 billion at the end of the quarter and up 22.5%, is forecast to grow only about 18.5% by the end of the fiscal year.
That figure matters more than the quarter's revenue because it is a snapshot of contracts in force, not of what was billed. A slowdown in recurring revenue now becomes slower reported revenue over the following year, which is why investors moved straight past the beat. Other numbers in the release were solid: remaining performance obligations rose 44% to $4.746 billion, free cash flow was $463 million, net income $91 million, and the company spent $581 million on buybacks.
Artificial intelligence was the bright spot management chose to highlight. More than 87% of enterprise cloud customers now use Rovo, Atlassian's AI assistant, and the company said customers who use it heavily grow their recurring revenue more than twice as fast as light users. Chief executive Mike Cannon-Brookes said enterprise AI had reached "an inflection point". For a stock that has been sold all year on fears that AI agents will reduce the number of software seats companies buy, the market wanted that to show up in the outlook, and it did not.
The episode is a reminder of how software stocks are valued: on the direction of growth more than its level. A company growing 24% that tells investors it will be growing 18% to 19% a year from now is, in their models, a different company. Atlassian's next report, in late January, will show whether Rovo adoption starts lifting recurring revenue, or whether the slower path set on Thursday is the new normal.